One of the questions asked is how will wealth creation affect the relationship of the Kwacha to foreign currencies?
Fortunately wealth creation raises finances by increasing the efficiency of money supply. This will give the central bank greater control over exchange rates. For instance, since when wealth creation is introduced one transaction now facilitates or triggers two payments instead of one this increase in efficiency automatically increases the strength of the Kwacha. Before wealth creation when a business receives ZmK1 from 1 sale or transaction it could only spend ZmK1. However, with wealth creation introducing split velocity 1 transaction of ZmK1 now yields ZmK2 for businesses. The exchange rate for US$10 is ZmK100. If the business received US$10 it would be worth only ZmK100 exchanged. But if someone bought ZmK100 worth of goods from the business that ZmK100 would be worth ZmK200 to the business due to split velocity. Therefore, US$10 is now, in real terms only worth US$5. Split velocity causes the Kwacha to appreciate against the dollar by 50%. In real terms US$10 is now only worth US$5 because wealth creation has made the Kwacha become instantly much stronger. Increasing the efficiency of money through wealth creation is a very powerful financial tool. It should not be underestimated. If you still have doubts about the power of split velocity, you should start setting them aside right about now.
What this means is that when wealth creation is introduced nationwide the Kwacha can potentially appreciate from US$1 = ZmK10 to US$1 = ZmK5. This is due to the fact that wealth creation improves the position of the Treasury by appearing to double the country’s dollar reserve as a result of the increase in efficiency of money supply brought about by split velocity. However, it will be upto the central bank to decide whether it wants the rate to remain at the new $1 to K5 or to revert back to $1 to K10 using monetary policy. Split velocity is the only mechanism/technology able to do this, any other approach to increasing money supply should be avoided as it would cause inflation instead of appreciation.
It also should not be forgotten that once businesses begin to use wealth creation as a financial service they no longer have to aggressively mark up products. They can sell products as low as cost price and still make more profit than they did in the old economy. Businesses are expected to lower prices in some cases by as much as 30%. With the Kwacha already appreciating by 50% as a result of split velocity, if it were to appreciate by a further 30% due to businesses being able to charge cost price and still make profits the Kwacha could easily appreciate beyond US$1 being equal to ZmK5 possibly bringing the exchange rate to US$1 = ZmK3.50. It should not be ruled out that rapid economic growth caused by split velocity could push the dollar and the Kwacha to parity, that is, US$1 =ZmK1. The possibility of this is quite real. The central bank could ofcourse intervene to weaken the Kwacha, but then this would create an artificial exchange rate rather than one created by market forces.
The tourism sector and domestic economy need not worry about the strengthening of the Kwacha. Approaches that require the depreciation of a national currency to make sectors such as tourism more attractive whilst compromising domestic purchasing power abroad become redundant in the wake of split velocity technology due to the lowering or normalization of prices in the economy, and due to the fact that the tourism sector is itself accelerated and should expect to thrive from increased internal operating efficiencies, domestic and international tourism by receiving new guests at a pace unseen before. The tourism sector in Zambia will see a significant increase in growth and will thrive in a wealth creation economy.
Thirdly, wealth creation simply enhances whatever businesses in the economy are doing. This means the increase in productivity will also enhance the export sector. As the economy grows the foreign exchange earned will also grow proportionally.
Forex and the exchange rate are therefore not of any concern as their conditions improve.
Many people will tend not to believe what wealth creation is expected to be able to do, such as very easily increase the value of the Kwacha. This is why a pilot that is required to demonstrate it can do all that is stated it can. I spent many years developing the split velocity system, mechanism or technology and testing the system, which in my view is possibly the most advanced system for managing money supply in the world today. A pilot is an ideal way to demonstrate what it can achieve.
Through wealth creation nearly all of Zambia’s problems related to inadequate financial resources should become a problem of the past.
A pilot of wealth creation and Split Velocity would be required to be implemented first to gain proof of concept that verifies these expectations.
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